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13 Mar 2013
Forex Flash: Brazil is gearing up to tighten very soon - BBH
Ilan Solot, EM Strategist at Brown Brothers Harriman believes that Brazil is gearing up to tighten very soon.
He starts by commenting that the statement to the much awaited March COPOM meetings was more conditional than many had expected, but it still left the door wide open to an interest rate hike. He adds that at this point, a hike in mid April is looking ever more likely, probably starting with 50bp. Recent data has come in on the strong side and the government is clearly becoming more alarmed by rising inflation. He writes, “As such, we think the most logical strategy would be to frontload hikes and try to hike the least possible. Our FX view remains the same: we think that USD/BRL will be largely stable through this period and trade within a range of 1.95-2.00. Moves below or above should be seen as reversal opportunities. The idea here is that authorities will play with only one tool at a time.”
He starts by commenting that the statement to the much awaited March COPOM meetings was more conditional than many had expected, but it still left the door wide open to an interest rate hike. He adds that at this point, a hike in mid April is looking ever more likely, probably starting with 50bp. Recent data has come in on the strong side and the government is clearly becoming more alarmed by rising inflation. He writes, “As such, we think the most logical strategy would be to frontload hikes and try to hike the least possible. Our FX view remains the same: we think that USD/BRL will be largely stable through this period and trade within a range of 1.95-2.00. Moves below or above should be seen as reversal opportunities. The idea here is that authorities will play with only one tool at a time.”